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Innovation in Canada: The Canadian startup that wants to kill the Apple Watch

Editor’s note: From November 19-30, Yahoo Finance Canada will be highlighting the best of Canadian innovation in a series called The Future Is Now. We’ll be bringing into the spotlight some of the companies and individuals that aren’t just pushing the limits, they’re creating new ones, for themselves and investors alike. We’ll be shining the spotlight on homegrown talent in the fields of satellite technology, autonomous vehicles, wearable tech and more. Check out our hub page for even more coverage and let us know in the comments: Which companies do you think represent the best of Canada looking toward the future?

Dilshan Modaragamage doesn’t think smartwatches are cool.

“It’s a black screen on your wrist. There is nothing cool or fashionable about that,” the 34-year-old engineer turned entrepreneur told Yahoo Canada Finance in an interview. “When you look at an analogue watch, there’s depth and intricacy.”

His company, Waterloo, Ont.-based Wearatec Inc., is marrying the style of an old school timepiece with the notifications, health tracking and payment capabilities of a smartwatch. The plan is to pack the band or clasp of the watch with technology, leaving the face to exude opulence.

“I’m a big watch guy and a big tech guy,” Modaragamage said. “I would rather wear a mechanical watch, but I still want those extra features.”

Wearatec initially planned to kill the smartwatch with a bluetooth and NFC equipped folding clasp for metal watch bands. Dubbed the “Link,” the design featured an outward-facing screen on the inside of the wrist. After four years of electronics development, an abandoned crowdfunding campaign, and about $350,000 in cash from the trio of founders, the company still has not brought a product to market.

Wearatec Link

That’s okay with Modaragamage. He’s convinced the precision craftsmanship and relentless focus on intricate detail that keeps watch aficionados obsessed with their timepieces must carry over to his company’s offerings.

Fitting chips, sensors and screens into a sleek casing capable of blending into a luxury watch isn’t easy. But the worst-case scenario would be rushing an awkward product to market that becomes a punchline after its launched, Modaragamage explained.

“The main focus should be on miniaturization and making something the a person would want to wear. Something that doesn’t end up as a paperweight,” he said.

Wearatec pivoted its business strategy about two years ago, after returning the money Indiegogo backers shelled out for a chance to kit out their watches with the smart clasp.

“We weren’t able to hit the numbers right out of the gate that we wanted to,” Modaragamage said. “We decided to peel that back and focus on a B2B (business-to-business) model. Instead of selling single units, we’d be looking at a 5,000 piece order from watchmaker or clasp manufacturer.”

Shying away from the spotlight by abandoning direct-to-consumer sales was a prudent move. Modaragamage said Wearatec has inked partnerships with major players in the watch industry such as Dexel SA, the Swiss buckle supplier to luxury brands like Tissot and Longines. The company has also partnered with Swiss watchmaker Jean Lassale.

Wearatec

“We want them to use our electronics module to design a strap to be able to add a connected product to their portfolio,” Modaragamage said.

Wearatec is taking aim at the still-growing wearable tech market. According to an International Data Corporation report released in September, the worldwide wearables market is forecast to ship 122.6 million units in 2018, up 6.2 per cent from the 115.4 million units shipped in 2017. However, the market intelligence company notes this will make 2018 the first year of single digit year-over-year growth.

Meanwhile, Swiss luxury-watch sales in the U.S. recently snapped a three-year slump, according to figures from the NPD Group, reported by the online wristwatch magazine HODINKEE. NPD’s retail data is proprietary, private, and available only to its watch-industry clients.

The company is in a race against fierce competition from household electronics names like Sony, as well as heavyweight watchmakers like Citizen and Mont Blanc. Wearatec is also at the mercy of companies that supply tiny electronic components. It’s tough terrain for a Canadian startup.

Modaragamage expects a white-label product to be ready to ship in summer 2019. The device is expected to include heart rate and motions sensors, NFC capabilities for payments, and, of course, a screen for app-based notifications. Wearatec’s partnership with contactless payment company Fit Pay will allow compatibility with AMEX, MasterCard, Visa, China Union Pay, and Discover Card.

Contactless payment

“Our vision is your watch should be able to replace your wallet, your car keys, your house keys, and your alarm code to get into your house. All those things are using existing NFC technology,” Modaragamage said. He’s also wants the device to be detachable, so it can be used across multiple watches.

Wearatec has gone to great effort to guard against the small, scrappy Canadian startup being muscled out by global giants. Protecting intellectual property is the name of the game, and the company is looking to win with three U.S. patents, and about 38 filings in other countries.

“With the partnerships that we are working on right now, we’ll have the financial backing and resources to be able to defend our market and our concept,” Modaragamage said. “Once we are in the certification stage, that’s when we will be looking to go out and raise private equity.”

Wearatec operates a research and development office in China to keep the company close to key electronics manufacturers. But Modaragamage’s goal is to shift all operations to Canada, where he arrived with his mother a quarter century ago from Sri Lanka.

“She was fleeing the civil war,” he said. “It was tough for us growing up. Eventually, I became an engineer and a successful entrepreneur. On my end, there is no such thing as second place, or doing things not 110 per cent.”